Alex Trias

Why President Obama's Proposed Regulations Subsidize Bank Investment

I just read your profile. It is now only too clear why you are familiar with the Coase Theorum. I certainly appreciate your taking the time to read my article, and to comment on it. Your background is very impressive, to say the least. I will look forward to following your articles, going forward.

Thanks again!


On Jun 19 09:39 AM William Gamble wrote:

> You might want to research the Coase Theorum. The origin of the Judge's
> wisdom

Why President Obama's Proposed Regulations Subsidize Bank Investment

Then, John, there is the cynical view. Give me an accounting rule, a tax law, or a bank regulation, and then give me a few greedy young men who know how to think outside the box, and I will show you a way to arbitrage the rule. And then package that arbitrage up and market it, perhaps making a tidy little sum in the process.

I think option number three is that the so-called "financial engineering" industry - the guys who invented special purpose vehicles to arbitrage bankruptcy law, for instance - will be primed to take off like a rocket, with regulations fueling the ascent. If you want to know my true hunch that investment banking will do well going forward, it has everything to do with "new product" development.

Regulations are not simply a call option for shareholders. It is a direct subsidy for law firms and investment banks! Looking at your profile, I believe both of us might know that first hand.

As hard as I try to be a cynic, the closest I can ever come is be a realist.

Let me think through your comment a bit further today. If I can add anything further, I will update my response.

Thanks again.


On Jun 19 10:26 AM John Lounsbury wrote:

> The basic trade-off that will determine how investment in banks will
> perform is (1) the positive effect of reduced shareholder liability
> vs. (2) the negative effect of regulation on profitability. If (1)
> dominates, Alex is correct. If (2) dominates......
>
> The question of regulation centers on what is regulated. If risk
> taking is limited, and that is the popular view of increased regulation,
> won't the potential for profit be limited? I don't want to argue
> that reduced risk taking from some of the extremes we have seen in
> the past 20 years is not a good thing. I do want to argue about
> how that should be accomplished.
>
> I would argue that allowing too big to fail institutions to exist
> with "adequate regulation" is the wrong course to follow. I know
> the argument that size is needed for the efficient operation of globalized
> business relationships. (That might be debatable, too, but I'll
> pass on that for now.) But, from a free market purity point of view,
> how can markets be free when they are controlled by government regulated
> monopolies?
>
> Alex has made a very good argument. I just think the argument can
> be extended. One can take the counter argument that would unleash
> competition, and ultimately, therefore, increase the universe of
> earnings. The counter argument would say that it is better to ensure
> too big to fail can not exist rather than allowing these oligarchs
> to continue with regulation of risk.

Why President Obama's Proposed Regulations Subsidize Bank Investment

Guido had his class read Ron Coase's work. If you asked Guido Calabressi, he would absolutely credit Ronald Coase's work as the foundation for his understanding of tort and contracts law.

Wonderful comment. Are you a lawyer, perhaps? Or simply interested in legal theory?


On Jun 19 09:39 AM William Gamble wrote:

> You might want to research the Coase Theorum. The origin of the Judge's
> wisdom